Preparing Treasury for an Uncertain Future

By Anne Friberg

Practitioners convene in Rome for EuroFinance’s 20th anniversary conference on international cash and treasury management. Plenary discussions keep it future-focused. 

Despite its being the 20th anniversary of EuroFinance’s principal annual event, there was little focus at the Rome conference on the past or resting on laurels. The plenary sessions of the first day had a clear emphasis on the future, both in general and for treasury, and wrapping up toward the end of the last day, BP’s group treasurer Dev Sanyal shared some crisis-derived lessons learned on how treasury can be a partner with the business to deal with risk and opportunity in an uncertain future.

After the futurologist introduced the audience to “knight’s move thinking” (see sidebar below), a technology panel followed by a corporate panel discussed how aspects of treasury might change in the future. Two decades out, technology will undoubtedly have changed how treasury work is done, eliminated routine work and enabled new processes.

Human nature evolves more slowly, so despite the reduced or eliminated use of “plastic” and checks in favor of mobile-phone enabled payments on the consumer side, a full 74 percent of the audience ruled out that any country would have fully rid itself of cash by 2030.

Technology only goes so far

An audience vote revealed that 70 percent thought that technology advances would not result in more free time for treasurers. In fact (perhaps in an attempt at self-preservation), at 62 percent, the crowd voted overwhelmingly that treasurers will become “more relevant” as there is a need for human input in complex decisions. When asked how much, in P/L terms, they would leave to “systems” to decide completely, they kept it relatively low: 31 percent said one day’s worth, 26 percent said one week’s worth, and 26 percent said one month’s worth.

Another concern, observed Microsoft’s Colin Kerr, industry solutions director, worldwide financial services, is that treasury staff in the future will be “digital natives, used to sharing everything,” and there will be a tug-of-war between their tendency to share data and policy- and security driven restrictions on doing so. A poll of the audience showed that 53 percent predicted that security and compliance concerns would “win out” over data sharing (47 percent).

standardization, Talent Needed

The treasurers of three very different companies sat on the corporate panel usually held on the first day: Ahold, the grocery giant, Dell the computer maker and Richemont, purveyor of luxury goods. They differ in organization and profit margins, for example, but share many treasury concerns.

The audience weighed in and 42 percent said that the greatest opportunity for treasury to add value in the next 12 months would be through process automation. Ahold’s low-margin business forces the need to simplify and automate processes to reduce cost, Ahold Treasurer Andy Nash pointed out.

Dell Treasurer Gary Bischoping noted that his company is already rather far down that road with only two of his 45 staff dealing with day-to-day routine tasks, but the real need is not only for standardized processing in the company (and with banks) but enough flexibility in the systems to deal with the high-velocity evolution of the business. John McAnulty, group treasurer at Richemont, observed that high margins allowed Richemont to make allowances for autonomy for the brands but the challenge is for treasury to keep it all together; to that end, they are in the midst of a “ten-year project” to implement SAP.

The audience appeared similarly challenged by their individual systems environments: 37 percent said they use a “patchwork” of systems for treasury and 46 percent of the respondents said they were either selecting, planning to
select or implementing a new TMS/ERP.

On the people side, the panelists agreed that the right size and talent of staff is crucial for treasury to evolve. Mr. Bischoping said he had been able to show internally how treasury had been instrumental in weathering the crisis and thus secure more resources both for people and IT.

Mr. McAnulty noted that a lot can be achieved using SaaS (software as a service) providers—and internal IT cannot keep up with the pace of developments there anyway—but the real need is for good project managers at the center. This change in skill-set requirements is of increasing concern to treasurers as they continue to meet the challenge of managing their talent pools.

Banks, corporates square off

A traditional bank panel included three corporate practitioners, yielding a more dynamic back-and-forth. Despite “documentation” being the biggest source of client dissatisfaction with banks—bankers are equally, if not more, frustrated with paperwork (see illustration)—the crux of the tension between corporates and their banks, according to Bombardier treasurer Dr. Mark Kirkland, is when there is a lack of understanding of how the other side makes money. He wants to know that his banks really understand how his company works and sought more transparency in what business banks are more interested in so that bank relationships can be mutually beneficial.

In response, Bank of America Merrill Lynch’s head of EMEA GTS, Carole Berndt, noted that what is right for the client is not always right for the bank’s P/L but banks committed to long-term relationships will deliver; to Dr. Kirkland’s point, she said corporates want to know “what we’re good at and what we’re not.” Deutsche Bank’s Daniel Schmand, head of EMEA corporate trade finance and cash management, said banks need to be clear on their own business model and realize they “cannot be a bank for all [segments].”

Good for all seasons

BP’s treasurer Dev Sanyal was interviewed near the close of the conference. He believes in the old adage that a crisis is both danger and opportunity, and having gone through some crisis times at BP, he summed up what he thought were the guiding principles of his operation.

In order to identify and manage downside and take advantage of opportunities that might arise he relies on a three-legged stool of policy, governance and capability. Policies do not exist in a vacuum but are driven by the context of the business. They need to be clear on accountability and mitigating actions to keep risk within acceptable boundaries. Governance is policy in action, and the framework should leverage the structure of the treasury organization, in BP’s case a highly centralized one (which Mr. Sanyal recommends).

Capability: “You can always insource good ideas, you can never outsource decision making,” Mr. Sanyal said. Attract and retain the best, invest in training and provide inter-regional opportunity. To build “treasury muscle,” Mr. Sanyal said:

1. Think globally: funds are global and fast moving.
2. Foster continuous learning
3. Be pragmatic: apply rigor but deploy it with a recognition of the underlying business
4. Be market agnostic but price-evangelical
5. Be nimble
6. Prepare, prepare, prepare: stress test the organization’s robustness in “peace time”
7. Be an optimist; look for opportunities.

Mr. Sanyal’s parting shot synthesized the theme of the conference. To guide treasury through uncertainty, he advised practitioners to always separate fact from fiction: “be very clear about the facts.” Also, be focused on matters that treasury can influence and finally, act proportionately: don’t underreact, don’t overreact. “It’s what history judges you on.”